INTEGRATION OF ANALYTICAL TECHNIQUES FOR SERVICE MANAGEMENT LOGISTICAL COORDINATION AT THE COLOMBIAN SHIPBUILDING INDUSTRY WILSON ADARME JAIMES 1

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1 INTEGRATION OF ANALYTICAL TECHNIQUES FOR SERVICE MANAGEMENT LOGISTICAL COORDINATION AT THE COLOMBIAN SHIPBUILDING INDUSTRY WILSON ADARME JAIMES 1 1 Industrial Engineering, Production Specialist, MSc Industrial Engineer. cphd Logistics. Professor Universidad Nacional de Colombia - Bogotá. Research Group Director. Society, Economy and Productivity- SEPRO Supply Chain Management. ISABEL CRISTINA DIAZ 2 2 Industrial Engineer, Research in supply chain - logistics. Member Research Group: Society, Economy and Productivity SEPRO - Universidad Nacional de Colombia JUAN PABLO CASTRELLON 3 3 Industrial Engineer. Research in Supply Chain Logistics. Member Research Group:Society, Economy and Productivity SEPRO Universidad Nacional de Colombia,

2 2 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry Please leave this page blank

3 Adarme W., Díaz I. C., Castrellon J. P. 3 Abstract The main purpose of a supply chain (SC) is to ensure customer satisfaction, not only at the product quality, but also at service level, which is a key success factor for presentday organizations. In order to achieve that, it is necessary to have methodologies focused on SC efficient service management, based on the recognition of the internal and external clients requirements. In this way, we have used the QFD technique to find strategic actions that offer solutions to those requirements, supported by the AHP and fuzzy logic principles, which guarantee the robustness needed to ensure their applicability in a shipbuilder, as well as in other decentralized systems that have the necessity of implementing coordination mechanisms, with the objective of increasing operational efficiency, profitability, and competitive position, while satisfying the service requirements. (Wang, Y, et al 2010). 1. INTRODUCTION A few years ago, logistics where detached from costumer service activities. Today, besides quality, innovation and adaptability, both goods and services must offer quick response to the time, place and quality of costumer s requirements.(dgpyme, 2007). Several academicians and organizations specialized in logistics have gone deep in the study of supply chain management (SCM) from the service management perspective. Particularly, our research group has identified a gap in the design of methodologies for the service management in shipbuilders, to be also used as a logistical coordination mechanism in their (SC). Moreover, in the current trends, the service management focuses especially on the external customers performance improvement, more than in aspects related to internal customers. Consequently, this paper presents the results of the design and implementation of a Service Management System, as a mechanism to coordinate a logistic environment in the Colombian shipbuilding industry. The study is the result of an approach to the Colombian shipbuilding industry logistic system, in which the need to redesign its discoordinated logistical system became evident. 3

4 4 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry The functional structure of the proposed system integrates the service strategic policies with the operational and logistics decisions, supported by the integration of analytical techniques (AHP, QFD, fuzzy logic), to evaluate costumer requeriments and to identify adequate solutions that ensure costumer satisfaction and logistical coordination. 2. SERVICE MANAGEMENT IN SUPPLY CHAINS 2.1 Definitions and Importance Supply Chain A supply chain is a system which links agents through flows of materials, information and money among them, with the aim of adding value. (Wang et al. 2010) exposes the need of sinchronizing the internal processes of the agents, in order to enhance the SC efficiency. It explains the importance of the coordination between agents. (Cooper et al. 1997) suggests the existence of three main structural elements in a SC: the typology of associative relationships in the SC; the structural dimensions of a SC that include a number of agents or levels of specification, number of actors, and their location within the chain; and finally, there are characteristics of processes developed among agents, according to the condition of centralization or decentralization (Chu 2007), and the power relationships presented inside the SC (Cox 2001), those elements influence the coordination efforts in a SC. In a decentralized SC, the coordination strategies strive to align the independent objectives of SC agents, which are one of the main features of the shipbuilders SC, and are the framework of the methodology exposed in this article. Customer Service It measures the ability of the logistic system of providing a good or a service timely and in place. The service level is directly related to the management and effectiveness of the SC: the more effective the SC, the more the value added to the costumer (DGPYME 2007), and hence, higher sales volume, market share, and profits for the organization (Ballou 2004).

5 Adarme W., Díaz I. C., Castrellon J. P Relationship between Supply Chain Management and Customer Service During the last decade, several researchers have explored the relationship between supply chain management, and adequate customer service. Among others (Korpela et al. 2001) described how the focus of logistics is merging from the profit optimization to offering better customer service. To this end, SC agents are required to be aware of the close relationship between the objectives of the SCM, and the customer service. According to this, (Witkowski 2003) explains the need of satisfying the expectations of customers in terms of delivery times, which requires the design of a common service strategy formulated by the SC actors. (Duglosz 2010) highlights the necesity of aligning the strategic decisions with the interests of customers, while the ultimate goal of a supply chain is to generate added value to the final consumer. 2.3 Proposed Techniques Regarding to the needs and theoretical basis exposed, a methodology has been proposed to support the service management in the SC, based on the integration of techniques such as QFD with fuzzy logic and AHP QFD with Fuzzy Logic The Quality Function Deployment Methodology (QFD) was primarily designed to unify the operations of R+D, engineering and production with customer requirements, for product development (Griffin, Hauser 1993). In the context of SC customer service management, the original technique of QFD is adapted to identify actions to be taken by the management to meet customer needs. In the QFD technique, it is necessary to establish the impact of each How (strategic actions of SC) on each What (service factors), using quantitative scales to calculate indicators of relative and absolute importance of each How. 5

6 6 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry Likewise, correlations are established between the Hows, with the possibility of positive or negative relationships (Bottani & Rizzi 2006). Figure 1. House of Quality in QFD methodology Source: Modified from (Bottani & Rizzi 2006) The final result of the implementation of this technique is the determination of key strategic actions for the organization to meet customer needs. The assessment of relationships processes in all the stages of the QFD has a condition of subjectivity that is solved by using fuzzy logic, which focuses on solving the inaccuracy problem presented in the linguistic variables of the natural language (Bojadziev 1995) AHP It is a supporting tool for the QFD model, applied to rank a set of factors which are considered by the decision maker, according to their importance and influence on the decisions to be taken. The Analytical Hierarchy Process (AHP) provides the classification of the most important service factors, from the customer point of view, as well as the strategic actions which will conform the What s and How s of the QFD model. To achieve that, (Mendoza, et al., 2007) references (Martínez 2007), who develops the idea of an AHP based on three stages:

7 Adarme W., Díaz I. C., Castrellon J. P. 7 - General service factors and decomposition of strategic actions, into objectives, criteria, decision rules, in a hierarchical structure. - Comparative judgments by pairs of the same hierarchical level between objectives and criteria, with respect to the superior level. - Criteria and objectives synthesis with regard to the judgments done in the previous stage. 3. IMPLEMENTATION OF THE METHODOLOGY 3.1 Methodology Structure The Service Management System in the Supply Chain was designed assessing three levels: I. Strategic level: it defines the general policy which determines the system structure and its general objectives. II. Tactic level: once the strategic value, the customer orientation and the integration principles are defined, the next steps have to be followed: i) analyzing all the logistic processes; ii) establishing what customer service factors could be used to measure the system performance; iii) providing possible strategic actions that could be used to meet the customer service levels expected. III. Operative level: it corresponds to the application of the QFD techniques with fuzzy logic and AHP. This process is complemented by a measuring system to verify the impact of the methodology at the organization service level. 3.2 Methodology development The process developed to construct the Service Management System includes the Key Service Factors and Strategic Actions Selection in which the AHP technique is used to select from a diverse set of service factors options and strategic actions, those that are most relevant for the system from the standpoint of cost in time and money. Therefore, the procedure of AHP is applied, for both service factors and strategic actions, as long as the number of available alternatives is greater than three. 7

8 8 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry 3.3 QFD Model Construction After selecting the service factors and strategic actions to be used, we proceed to apply them in the QFD model structure. The QFD process begins with the identification of relationships in the system, through analyst value assignment. In the proposed methodology, the influences and relationships between service factors and strategic actions are expressed in terms of fuzzy numbers, due to the fuzzy logic properties of allowing the weight of subjective judgments. The weight or correlation relationships are measured by a linguistic variable of intensity with five terms. Those terms are translated into fuzzy sets (Bojadziev 1995), with the purpose of giving a mathematical approach to human thinking, whose main characteristic is the inaccurate propositions. Fuzzy sets are described by a membership function that assigns a specific range and specifies the belongingness level of a particular judgment in the fuzzy set. In this case, a triangular membership function is used, due to the easiness in its computational implementation and its wide applicability in topics related to decision making. Thus, the service factors, strategic actions, and the relationships between these two elements are modeled with different membership functions according to linguistic variables. Next, the procedure applied is explained in detail Weighted Importance of Service Factors The QFD methodology establishes the importance of weigthing the service factors. This weight is represented by W i * and is calculated by finding the distance d i beteween the performance expected by the customer and the current performance of the company. The distance d i is a fuzzy number, and (Bottani & Rizzi 2006) expresses it as: ) ) ) ) Where by: is the universe of the fuzzy set. Based on that relationship, W i * can be found

9 Adarme W., Díaz I. C., Castrellon J. P. 9 The linguistic variable is importance, and its terms are VL= Very low importance, L=Low Importance, M=Moderate Importance, H=High Importance, VH: Very high importance. Figure 2. Fuzzy sets of the linguistic variable importance Source: Modified from (Bevilacqua et al. 2006) The membership function of each fuzzy set is: { { { { { And the fuzzy numbers for this model are ) ) ) ) ). Those fuzzy numbers are taken into account when the relationships between What s and How s are analyzed Relationship Matrix and Correlation Matrix At this point, the values are determined, and they represent the relationship between the j-th strategic action and the i-th service factor. ) 9

10 10 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry The linguistic variable is intensity and the scale measures the relationships in terms of the current variable. The fuzzy numbers are the same as in the weighted importance of service factors. Subsequently, the values of the correlation matrix are specified; they represent the incidence among the strategic actions. For this case the linguistic variable is relationship and its terms are: SN = Strong Negative, WN = Weak Negative, SP = Strong Positive y, WP = Weak Positive, as shown in Figure 3. The fuzzy numbers for the correlation matrix are ) ) ) ) The expression to evaluate the correlation is: ) ) ) Figure 3. Fuzzy sets of the linguistic variable intensity Source: Modified from (Bevilacqua et al. 2006) Weighted Importance of Strategic Actions Based on the previous results, the importance of strategic actions calculated; this can be done by applying: must be

11 Adarme W., Díaz I. C., Castrellon J. P. 11 ) ) The result of this analysis highlights the importance of each strategic action, according to the impact that they have on the service factors. However, the importance must be evaluated in a wider manner, taking into account the influence of the strategic actions on each other. The expression formulated by (Bottani & Rizzi 2006) is: Cost and Marginal Benefit of Strategic Actions The final step to complete the House of Quality is the estimation of costs and profits as a result of the strategic actions application, in the customer service management practices. Based on this result, decision makers judge which estrategic action is key for satisfying customer needs. For cost estimation, fuzzy logic is used again to valorate the judgemen of analists, researches, employees and managers. The linguistic variable is cost, and its terms are ) ) ) ) ). Thus, the way to calculate costs is: Once costs of strategic actions are defined, it is possible to calculate the marginal benefits (MBs) of the implementation of each SA. (Bottani & Rizzi 2006) propose: 11

12 12 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry The HOQ for Strategic Management of the Logistics Service Final decisions are based on the strategic actions hierarchy produced by the QFD methodology, according to the marginal benefits calculated before. But these (MBs) are expressed in fuzzy numbers, which have to be translated into crisp values in order to develop the comparison among the benefits of each SA. The formula proposed by (Bojadziev 1995) to unfuzzy the numbers is: Where the factors come from the fuzzy number ). Thus, the critical strategic actions can be defined, and the management will have a support tool to focus the resources on those key SA in the customer service management Feedback system It measures performance of the system under the methodology of QFD. The measure is made by analyzing the improvement of the service factors after implementing the estrategic actions of the QFD. To achieve such analysis, the improvements are weighted taking into account the relevance that they have on the customer satisfaction. The mathematical expression is:

13 Adarme W., Díaz I. C., Castrellon J. P SHIPBUILDERS SUPPLY CHAIN DESCRIPTION 4.1 Shipbuilders productive structure A shipbuilder supply chain structure corresponds to a productive system project, in which there is a fixed position layout, and all the resources are moved to this ship s construction or repairing position. Regarding to the customer relationship, the production system is defined as a build to order one, which implies that it is produced on-demand, according to specific requirements. 4.2 Supply Chain Description The SC structure has several differences compared to traditional approaches. Its main characteristics are: order-based production, and not stock-based production, more flexibility, customized production, low inventory levels and collaborative partnerships among selected suppliers. It also presents the pull system characteristics, in which the materials are pulled through the system based on customer orders. (Gunasekaran & Ngai 2005). The SC shipbuilder structure includes three levels that interact between each other: suppliers, the shipbuilder, and final costumers. Many of the purchasing, warehousing, production and distribution conditions are determined by the final order terms, which vary widely from one to another according to the particular needs of every final costumer. In this SC, it is important to have a project management system, so as to ensure proper management of the resources needed to meet production orders. Figure 4 is a representation of an SC shipbuilder structure: 13

14 Selected SUPPLIERS Project management FINAL CUSTOMERS 14 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry Proveed or 1 Project 1 Client e 1 Proveedor m Almacén 2 Project n SHIPBUILDER Requirements Supply Client e k 5. RESULTS AND DISCUSSION Figure 4. Generic shipbuilder SC structure Source: Authors The Service Management methodology developed here was applied in a Colombian shipbuilder following this process: 1. Selection of service factors and strategic actions: six service factors were chosen, as well as five strategic actions, in order to respond to the service factors. This selection was based on the application of surveys and interviews to experts, which served as a tool for extracting general opinion trends related to both service factors and strategic actions that are critical in the shipbuilder sector. 2. Application of a AHP procedure: the service factors were ranked in relation to the interests of internal and external customers, and strategic actions in accordance with the monetary cost and ease of implementation, obtaining the following: SERVICE FACTOR PRIORITY STRATEGIC ACTION PRIORITY VALUE VALUE Product and/or service quality 0,41 Monitoring suppliers 0,42

15 Hows Monitoring suppliers Traceability information system Training Not selected Adarme W., Díaz I. C., Castrellon J. P. 15 % of correct orders 0,21 Information system traceability 0,20 Lead time 0,15 Flexible in responding to 0,13 Training 0,18 changing needs After-sales service 0,06 After-sales service system 0,15 Reliable delivery of 0,05 Flexible manufacturing system 0,04 information Table 1. AHP results Source: Authors 3. QFD with fuzzy logic procedure application: using the previous results, we proceed to apply the technique using service factors and strategic actions selected, obtaining figure 5. (-1.5, -0.5, 0.5) (0.5, 1.5, 2.5) (-0.5, 0.5, 1.5) Whats Product and/or service quality (4,5,6) 0,8 (3,4,5) (4,5,6) (4,5,6) (3.2,4,4.8) % of correct orders (3,4,5) 0,6 (3,4,5) (3,4,5) (3,4,5) (1.8,2.4,3) Lead time (2,3,4) 0,9 (3,4,5) (2,3,4) (2,3,4) (1.8,2.7,3.6) Flexibility for responding to (1,2,3) 0,4 (1,2,3) (2,3,4) (3,4,5) (0.4,0.8,1,2) changing needs 15

16 16 Integration Of Analytical Techniques For Service Management Logistical Coordination At The Colombian Shipbuilding Industry (20.8,38,60.6) (22.6,40.1,63) (23,40.9,64.2) (-23.2,40,190) (-1.1,77.4,247.8) (-42.5,1.1,124.8) (2,3,4) (4,5,6) (2,3,4) (- 11.6,13.2,47.4) (-0.2,15.5,41.3) (-21.2,0.3,31.2) Crisp values 15,57 18,01 2,67 Figure 5. QFD with fuzzy logic application results Source: Authors This results show that, in relation to service factors, the strategic action "Traceability Information System, generates the highest utility for the company. 6. CONCLUSIONS The methodology developed in this proposal, although based on classical techniques (QFD, fuzzy logic, AHP) is innovative in the field of customer service management for managing supply chains in shipbuilders. It provides an implementation methodology and a monitoring system that allow the company to align their service activities to the internal and external customers requirements. Despite the ease of implementing the tool, analysts and executives of shipyards must have a previous approach and clear communication channel with customers, to determine the factors interest them the most. In other words, QFD methodology should not be a starting point for managing customer service but should be a support for activities that are already established. This proposal does not contemplate how to develop selected strategic actions, so future research should be conducted in the QFD application for the development of such practices.

17 Adarme W., Díaz I. C., Castrellon J. P. 17 References Ballou, R., { ed. ed., xico earson ducaci n. Bevilacqua, M., Ciarapica, F.E. & Giacchetta, G., A fuzzy-qfd approach to supplier selection. Journal of Purchasing and Supply Management, 12(1), pp Bojadziev, G., Fuzzy sets, fuzzy logic, applications, Singapore ;;River dge NJ: World Scientific Pub. Co. Bottani, E. & Rizzi, A., Strategic management of logistics service: A fuzzy QFD approach. International Journal of Production Economics, 103(2), pp Cooper, M.C., Lambert, D.M. & Pagh, J.D., Supply Chain Management: More Than a New Name for Logistics. The Inter. Journal of Logistics Management, 8(1), pp Cox, A., Managing with power: strategies for improving value appropriation form supply relationships., 37, p DGPYME, M. de C., Industria y Turismo, España. Duglosz, J., Strategic nature of the logistics customer service in the supply chain., 6(2), pp Griffin, Hauser, A.,J.,1993.The Voice of the Customer. Market Science,12(1), pp.1-27 Gunasekaran, A. & Ngai, E.W.T., Build-to-order supply chain management: a literature review and framework for development. Journal of Operations Management, 23(5), pp Korpela, J., Lehmusvaara, A. & Tuominen, M., Customer service based design of the supply chain. International Journal of Prod. Economics, 69(2), pp Wang, Y.-L., Ye, S.-W. & Yan, G.-Q., Multi-agent System Developed for the Logistics Supply Chain Coordination and Risk Management. In 2010 International Conference on E-Business and E-Government International Conference on E- Business and E-Government (ICEE). Guangzhou, China, pp Available at: [Accessed April 29, 2011]. Witkowski, J., 2003., Warszawa: Polskie Wydaw. Ekonomiczne. 17

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